Executive summary

Climate change is a dynamic problem with uncertain consequences. As we learn more about the benefits and costs of abatements over time, any agreement made today is bound to be renegotiated and updated in the future. Anticipating such negotiations, every country may try to influence its future bargaining power to be able to negotiate a more favorable deal. Increasing the bargaining power can be done by (i) investing less than optimally in R&D, (ii) adapting more to climate change than what is socially optimal, (iii) signaling reluctance by delay, or (iv) delegating bargaining authority to representatives that are less in favor of an agreement. Such strategic behavior makes an efficient agreement less likely. In fact, the situation with an agreement can be worse than a situation without any agreement at all. Thus, it is immensely important to determine in advance the rules governing how the countries should negotiate and update future climate change agreements.

This chapter presents and discusses five such rules. First, the negotiations may be more efficient, and less strategic, if harmonization of contribution-levels is required across countries, or if the contribution-shares are pre-determined by some formula that itself is not subject to renegotiation. Second, the time horizon of an agreement should be long enough to prevent the above-mentioned strategies from being too influential. The larger the number of participants, the longer the time horizon should be. Third, the default (the outcome to which one reverts if the negotiations fail) should be the previous agreement or, even better, a very ambitious agreement. This provides an efficient starting point from which one may renegotiate the agreement.